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highest proportion of weak records (over half), and were half as likely as NGO or bank promoted
groups to have good or moderate records. This is not surprising, since 77 percent of government
promoted groups receive low inputs of any kind, microfinance or development, or field worker
supervision, as compared with the average proportion for all groups, of 37 percent. 20
An extremely
useful finding is
that it costs
the equivalent
of $115 to
launch a group
and another
$145 to
continue
training and
monitoring it,
for a total of
$259 per group.
This figure is
about the modal
cost of about Rs
10,000 per
group reported
across a number
of studies, and
imparts a sense
of realism about
the financial
magnitude of
the task ahead,
which however
is affordable as
discussed below
The level of overdues within groups has prudential implications not only for members' own
savings, but is likely to be correlated with overdues from the groups to the banks, although
this may have been masked so far because the relatively small size of the first couple of loans
has enabled most groups to make bullet repayments at the end of the loan period. While this
has the advantage of reducing transactions costs and may be more compatible with seasonality
of cash flows, it could prove increasingly problematic as loan size increases. Although the
norm is regular weekly or monthly payments, at least of interest, and often also of principal, in
practice most SHPAs do not consider a loan to be overdue until repayment is 90 days overdue.
On this definition 24 percent of current borrowers had overdues (and 5 percent of them were
overdue by more than 12 months). Overdues were the highest for very poor borrowers, followed
by those for the non-poor. 21
Another measure of portfolio quality is portfolio at risk (PAR), which for the 45 percent of
groups that had PARs of 365 days was 17 percent. 22 Overdues do not necessarily lead to
default, and largely reflect considerable variance in practice with the stated norm of regular
monthly or quarterly repayments, but default was found to be the most important reason for
groups breaking up or ceasing to function (small though their number is), and overdues
reduce the availability of funds for relending within the group and timely repayments to the
banks. They also reduce profitability. 23 The study also found indications of an increasing
number of groups reaching the limits of their credit absorption capacity, or the emergence of
a sort of Peter's Principle, with groups rising to a level of loan size which they find difficult to
absorb or repay, and of older groups being more likely to default. Viewed in this context, the
impatience sometimes expressed with the rate and progression in size of repeat loans by the
banks may be misplaced. In fact the evidence points to the need for consolidation of quality
in its many aspects, and considerably diluting if not abandoning the present focus on targets.
Value for Money
Another 2005 study "Do Self-Help Groups provide value for money" by LB Prakash and Others
(Forthcoming), of 150 SHGs, 30 in each of 5 states, in each of which they were promoted by
an SHPA of different institutional type, comes out with a similarly mixed verdict, and remarkably
similar findings on (i) equity in loan distribution within groups (ii) dropouts (15 percent of
members for the sample groups with had an average age of 5 years, but who were replaced by
new members to the extent of 9 percent) (iii) longevity (lower for government promoted
groups), and (iv) deteriorating portfolio quality with age (but better than in LSS with the
365 day PAR being 11 percent). It found evidence also of a correlation between PARs within
groups and in relation to loans outstanding to the banks. 24
Like many other studies it noted empowerment benefits, and increases in income (but for only
25 percent of the members), and the decline of moneylenders who either "disappeared" or
reduced their rates. Interestingly it did not find evidence of the NGOs in its sample having
better portfolio quality, deeper outreach or greater profitability. An extremely useful finding
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